Roth TSP vs. Roth IRA: How They Compare
Both Thrift Savings Plans (TSPs) and Individual Retirement Accounts (IRAs) come in traditional and Roth versions. One of the main differences between a Roth TSP vs. Roth IRA is who can contribute. Federal employees and members of the military can save in a Roth TSP. Anyone with earned income that’s within IRS income thresholds can contribute to a Roth IRA.
In either case, your contributions are not tax-deductible, but you can make tax-free qualified withdrawals when you retire.
Key Points
• Roth TSPs are available to federal employees and military members, while Roth IRAs are accessible to anyone with earned income within IRS income thresholds.
• Contributions to both Roth TSPs and Roth IRAs are made with after-tax dollars, allowing for tax-free qualified withdrawals in retirement.
• Roth TSPs have higher annual contribution limits and allow for employer matching contributions, unlike Roth IRAs.
• Roth IRAs typically offer a broader choice of investment options than Roth TSPs.
• Choosing between a Roth TSP and Roth IRA depends on employment status, contribution capacity, and retirement goals.
What Are Roth Thrift Savings Plans (TSP)?
The Thrift Savings Plan is a retirement plan that’s designed specifically for federal employees. You’re generally eligible to contribute to a TSP if you’re covered by the Federal Employees’ Retirement System (FERS) or the Civil Service Retirement System (CSRS). Members of the military can also save for retirement in a TSP.
A Roth TSP allows you to contribute after-tax dollars. When you make qualified withdrawals in retirement, those withdrawals are not taxed. Earnings are considered qualified if:
• At least 5 years have passed since January 1 of the first year in which you began making contributions, and
• You’re 59 ½ or older, permanently disabled, or deceased.
Contributions are made through elective salary deferrals, similar to a 401(k) plan. Catch-up contributions are allowed for workers aged 50 or older. Under the SECURE 2.0 Act, a higher catch-up contribution limit applies in 2025 for those ages 60 to 63. The IRS determines how much you can save in a Roth TSP each year. Here are the contribution limits for 2024 and 2025.
| 2024 | 2025 | |
|---|---|---|
| Elective Deferrals | $23,000 | $23,500 |
| Catch-Up Contributions | $7,500 | $7,500 $11,250 for those ages 60-63 |
| Annual Additions Limit | $69,000 | $70,000 |
The annual additions limit is the total amount you can contribute in a calendar year. It includes employee contributions, as well as automatic and matching contributions made by your employing agency. Catch-up contributions do not count in this total.
What Are Roth IRAs?
A Roth IRA retirement account is an individual retirement account that allows you to contribute after-tax dollars, then make qualified withdrawals tax-free. Roth IRAs are available to individuals through brokerages, banks, and other financial institutions, rather than through employers.
You’ll need to have earned income to contribute to a Roth IRA. The IRS sets the maximum annual contribution limit. Catch-up contributions are allowed if you’re 50 or older. Here’s how the limits compare for 2024 and 2025.
| 2024 | 2025 | |
|---|---|---|
| Annual Contributions | $7,000 | $7,000 |
| Catch-Up Contributions | $1,000 | $1,000 |
The annual limit does not apply to rollover or reservist contributions. How much you can contribute to a Roth IRA is based on your income and tax filing status.
You can make the full contribution in 2024 if:
• You file single or head of household and your modified adjusted gross income (MAGI) is less than $146,000
• You’re married, file separately, did not live with your spouse during the year and your MAGI is less than $146,000
• You’re married and file jointly or are a qualifying widow(er) and your MAGI is less than $230,000
You can make a full contribution in 2025 if:
• You file single or head of household and your MAGI is less than $150,000
• You’re married, file separately, did not live with your spouse during the year, and your MAGI is less than $150,000
• You’re married and file jointly or are a qualifying widow(er) and you’re MAGI is less than $236,000
There are no required minimum distributions for Roth IRAs, so you can leave money in your account until you need it. You can also withdraw original contributions at any time, without a tax penalty.
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Similarities Between Roth TSP vs. Roth IRA
It’s important to open a retirement account that fits your needs. In terms of what’s similar between a Roth IRA vs. Roth TSP, they both allow you to contribute money on an after-tax basis. In other words, you pay taxes on the money that goes into the plan upfront so you can withdraw it tax-free later.
Once you reach age 59 ½, you can begin taking distributions without triggering any tax consequences. In terms of early withdrawals from a TSP vs. Roth IRA, there’s no difference. The IRS can assess a 10% early withdrawal penalty when taking money out of either account prematurely.
Both Roth IRAs and Roth TSPs are subject to the five-year rule mentioned earlier. Again, that rule dictates that at least five years must have passed since making your first contribution in order to avoid a tax penalty when making withdrawals.
| TSP Roth vs. Roth IRA Similarities | |
|---|---|
| Funded with… | After-tax dollars |
| Contributions are… | Not tax-deductible |
| Qualified withdrawals are… | Tax-free |
Differences Between Roth TSP vs. Roth IRA
While they do have some things in common, there are some notable differences between a Roth IRA vs. TSP.
First, the TSP is an employer-sponsored plan, while an IRA is not. If you don’t work for the federal government you wouldn’t have access to a Roth TSP, but you could still open a Roth IRA and contribute to it.
Next, Roth TSPs have much higher annual contribution limits and catch-up contribution limits. They also allow for employer matching contributions, something you won’t get with a Roth IRA. Your ability to contribute to a TSP is not limited by your income either.
While Roth IRAs allow you to withdraw original contributions at anytime without a tax penalty, that’s not the case for Roth TSPs.
| TSP Roth vs. Roth IRA Differences | |
|---|---|
| Contribution limits… | Are higher for Roth TSPs |
| Matching contributions… | Only apply for Roth TSPs |
| Contribution withdrawals… | Only Roth IRAs allow you to withdraw original contributions at anytime without a tax penalty |
Roth TSP vs. Roth IRA: The Pros
There are several types of retirement plans that can offer tax advantages, including both Roth TSP and Roth IRA accounts. In terms of the pros, the main benefits of choosing either of these accounts lies in the ability to withdraw money when you retire tax-free.
If you expect to be in a higher tax bracket when you retire, Roth TSP or Roth IRA withdrawals won’t increase your tax liabilities. That’s a good thing if the value of your investments within either account has risen significantly since you first begin making contributions.
Roth TSPs may help you save a decent amount of money for retirement if you’re able to max out your plan each year. The addition of employer matching contributions is another benefit, since that’s essentially “free” money. You don’t get that with Roth IRAs, but these accounts can still be a good way to save if you don’t have access to a retirement plan at work.
| Roth TSP Pros | Roth IRA Pros |
|---|---|
|
• Contribute money on an after-tax basis • Contributions grow tax-free • Qualified withdrawals are tax-free • High annual contribution and catch-up contribution limits • Employer matching contributions may help your savings grow faster • Eligibility to contribute is not tied to your income |
• Contribute money on an after-tax basis • Contributions grow tax-free • Qualified withdrawals and withdrawals of original contributions are tax-free • Save for retirement even if you don’t have a workplace retirement plan |
Roth TSP vs. Roth IRA: The Cons
While there are some advantages to saving in a Roth TSP or Roth IRA, there are also some potential downsides. For one thing, you’ll need to have a federal job (that is, work for the federal government is some capacity) in order to contribute to a Roth TSP. With a Roth IRA, your ability to make a contribution hinges on your income and filing status.
Roth TSPs are also known for offering a narrower range of investment options. If you make an in-service withdrawal from your account and you’re not age 59 ½ yet, you should be prepared to pay a tax penalty.
A Roth IRA doesn’t offer matching contributions, nor can you borrow from it. Any early withdrawals that are not qualified or don’t otherwise meet the five-year rule could be subject to tax penalties. While you might have more investment options to choose from, it’s important to be mindful of the fees you may pay.
| Roth TSP Cons | Roth IRA Cons |
|---|---|
|
• Must be an eligible federal employee to contribute • Investment selection may be limited • In-service withdrawals only allowed for financial hardship • Early withdrawal penalty may apply |
• Must be within the IRS threshold guidelines to contribute • How much you can contribute is tied to income and filing status • No option to take loans • No employer matching contributions • Early withdrawal penalty may apply |
Roth TSP vs. Roth IRA: Which Is Better for Your Retirement Goals?
Selecting a retirement plan is an important decision as you want to choose an option that aligns with your needs, goals, risk tolerance, and objectives. Contributing to a Roth TSP could be wise if you’re a federal employee, since you can take advantage of higher contribution limits and employer matching contributions.
A Roth IRA, meanwhile, could make sense if you don’t have access to a retirement plan at work or you want to supplement your employer’s plan. Contributing to a retirement plan at work doesn’t bar you from also contributing to a Roth IRA, as long as you’re within the income limits set by the IRS.
The one that’s better for you may depend on where you work, how much money you’re able to contribute to retirement savings each year, and when you plan to retire. When comparing investment options for a Roth TSP vs. Roth IRA, consider the overall track record of those investments as well as the fees you might pay.
The Takeaway
Whether you choose a Roth IRA vs. Roth TSP or something else, it’s important to save for retirement early and often. Even if you can only afford to contribute small amounts to a retirement account, they can add up over time as long as you remain consistent.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Should I max out my TSP or Roth IRA?
If you can afford to max out your TSP, it might make sense to do so before maxing out a Roth IRA. The simple reason for that is TSPs have higher annual contribution limits and you can also get a matching contribution from your employer. If you only have a Roth IRA, then maxing it out each year can help you save the most money possible toward your retirement goals.
Is a Roth IRA better for retirement or a Roth TSP?
A Roth IRA is a good retirement savings option if you want to be able to make tax-free withdrawals later. However, a Roth TSP allows you to contribute a larger amount of money each year and your employer can also make matching contributions on your behalf.
Does a Roth TSP reduce taxable income?
Roth TSP contributions are made using after-tax dollars, so they do not reduce your taxable income for the year. You can, however, manage your tax liability by taking advantage of any deductions and credits you might be eligible for.
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